Canyon Services Group Inc. (TSX:FRC) reports second quarter 2009 results



    CALGARY, Aug. 4 /CNW/ - Canyon Services Group Inc. today announced its
second quarter 2009 results. The following should be read in conjunction with
the Management's Discussion and Analysis, the consolidated financial
statements and notes of Canyon Services Group Inc. which are available on
SEDAR at www.sedar.com.

    OVERVIEW OF THE SECOND QUARTER 2009

    The second quarter is traditionally the weakest quarter for the Canadian
oilfield services sector as the spring thaw makes the ground unstable for
purposes of moving heavy equipment and as a result, municipalities and
transportation departments enforce road bans, thereby significantly reducing
drilling and well servicing activity levels. Nevertheless, the seasonal
break-up in the second quarter was even more pronounced than normal due to the
current economic environment, with downward natural gas price pressures
resulting in ongoing, lower, industry-wide equipment utilization levels.
    In the case of natural gas pricing, AECO-C spot prices decreased by 29%
in Q2 2009 compared to Q2 2008, and by 66% for the first six months of 2009
compared to the 2008 comparable period, causing exploration and production
companies to significantly curtail 2009 capital expenditure budgets. As a
result, in Q2 2009, the key indicators for utilization of stimulation
equipment, well licensing activity and drilling rig utilization, significantly
trailed the prior year's levels. Well licenses issued in Q2 2009 and for the
first half of 2009 were 58% and 50% lower respectively than the 2008
comparable periods. Drilling rig utilization in Q2 2009 was only 11% versus
the 20% achieved in Q2 2008 while the first half of 2009 was about 23% versus
38% in the 2008 comparable period, representing the weakest utilization since
the early 1990's.
    Canyon's continued expansion into deeper segments of the market with the
successful completion of large, horizontal, multi-stage fracs in the Montney,
has resulted in higher hydraulic fracturing revenues and significantly
increased average revenues per job in 2009. For the first half of 2009
revenues increased by 24%, with jobs completed decreasing by 5%. In Q2 2009,
total revenues remained relatively flat compared to Q2 2008, with jobs
completed decreasing by 27% over the two quarters.
    The operating and financial highlights for the three and six months ended
June 30, 2009 may be summarized as follows:

    
    Operating and Financial Highlights

    -   In Q2 2009, Canyon's revenues totaled $4.0 million compared to
        $4.2 million in Q2 2008. However, in the six months ended June 30,
        2009, total revenues increased by 24% to $28.1 million from
        $22.6 million in the 2008 comparable period.

    -   In Q2 2009, Canyon completed 97 jobs compared to 132 jobs completed
        in Q2 2008, a decrease of 27%, while for the first six months of 2009
        total jobs completed decreased by 5% to 599 from 632 in the 2008
        comparable period.

    -   Average revenue per job increased in Q2 2009 by 27% to $41,228 from
        $32,521 in Q2 2008, while for the first six months of 2009, average
        revenue per job increased by 30% to $46,947 from $36,111 in the 2008
        comparable period.

    -   In Q2 2009, Canyon expanded its customer base with the completion of
        a multi-well pilot project for a major, international exploration and
        production company, employing the patented Grand Canyon technology
        process. The results are presently being evaluated by the customer.

    -   As a result of significant, company-wide cost reductions implemented
        in late March 2009, fixed costs and SG&A before stock based
        compensation expense were reduced by 28% in Q2 2009 compared to
        Q1 2009.

    -   Spring break-up and weak demand across the industry for well
        stimulation services in the quarter resulted in a loss before income
        taxes of $5.9 million in Q2 2009 compared to a loss before income
        taxes of $6.7 million in Q2 2008.

    -   In May 2009, Canyon renewed its bank credit agreement with no change
        to the available credit facilities. The interest rate spread over
        prime on all facilities payable has been increased by 75 basis points
        pursuant to the renewal terms.

    -   As at June 30, 2009, the Company's available credit facilities total
        $17.8 million.

    QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS

                                                       June 30,      June 30,
    Quarter Ended                                         2009          2008
    -------------------------------------------------------------------------
                                                    (unaudited)   (unaudited)

    Revenues                                        $4,011,369    $4,191,145

    Expenses
      Operating                                      5,392,159     5,972,049
      Selling, general and administrative            1,621,881     1,862,471
      Stock based compensation                         422,380       219,254
      Interest on long-term debt                       170,915       379,892
      Other interest                                     8,829        62,287
      Depreciation and amortization                  2,290,549     2,355,458
                                                  ---------------------------
    Loss before income taxes                        (5,895,344)   (6,660,266)
                                                  ---------------------------

      Income taxes-future (reduction)                 (506,343)      (96,415)
                                                  ---------------------------
                                                      (506,343)      (96,415)
                                                  ---------------------------
    Net loss and comprehensive loss                $(5,389,001)  $(6,563,851)
                                                  ---------------------------
                                                  ---------------------------

    EBITDA before stock based compensation(1)      $(3,002,671)  $(3,643,375)
                                                  ---------------------------
                                                  ---------------------------
    Loss per share:

      Basic                                             $(0.24)       $(0.30)
      Diluted                                           $(0.24)       $(0.29)
                                                  ---------------------------
                                                  ---------------------------

    Note (1): See Non-GAAP Measures.
    


    Revenues

    In Q2 2009, average revenue per job increased by 27% to $41,228 from
$32,521 in Q2 2008 as Canyon completed larger, multi-stage fracs in northeast
British Columbia. Total revenues recorded in Q2 2009 remained relatively flat
at $4.0 million compared to $4.2 million in Q2 2008 as the number of jobs
decreased to 97 in Q2 2009 from 132 in Q2 2008. The decrease in job count is
the result of significantly reduced activity across the oilfield services
sector.

    Operating Expenses

    Operating expenses decreased by 10% to $5.4 million in Q2 2009 from $6.0
million in Q2 2008, as a result of the reduced job count and reductions in the
fixed component of operating costs implemented in late March 2009.

    Selling, General and Administrative Expenses

    Selling, general and administrative expenses decreased to $1.6 million in
Q2 2009 from $1.9 million in Q2 2008 mainly due to cost cutting measures
introduced in late March 2009.

    Stock-Based Compensation Expense

    In Q2 2009, the Company recorded stock-based compensation expense of $0.4
million compared to $0.2 million in the 2008 comparable quarter. The increase
is due to $0.2 million accrued non-cash stock-based compensation expense
relating to deferred share units which will vest commencing February 11, 2010,
with an offsetting liability included in accounts payable and accrued
liabilities.

    EBITDA (See Non-GAAP Measures)

    In Q2 2009, the seasonal reduction in industry activity has resulted in
negative EBITDA before stock based compensation expense of negative $(3.0)
million, an improvement over the negative $(3.6) million recorded in the 2008
comparable quarter. The Q2 2009 EBITDA before stock based compensation expense
of negative $(3.0) million consists of loss before income taxes of $(5.9)
million, plus depreciation and amortization of $2.3 million, plus interest on
long-term debt and other interest of $0.2 million, plus stock-based
compensation expense of $0.4 million. The comparable Q2 2008 EBITDA before
stock based compensation expense of negative $(3.6) million consists of loss
before income taxes of $(6.6) million, plus depreciation and amortization of
$2.4 million, plus interest on long-term debt and other interest of $0.4
million, plus stock-based compensation expense of $0.2 million.

    Interest Expense

    Interest on long-term debt and other interest totals $0.2 million in Q2
2009 compared to $0.4 million in Q2 2008. The lower interest expense is mostly
due to lower debt levels in the current quarter under review.

    Depreciation Expense

    Depreciation expense was recorded at $2.3 million in Q2 2009, largely
unchanged from the $2.4 million recorded in Q2 2008.

    Income Tax Expense

    At the expected combined income tax rate of 29.0%, loss before income
taxes for Q2 2009 of $(5.9) million would have resulted in an expected income
tax recovery of approximately ($1.7) million compared to the actual recovery
of ($0.5) million. The expected future income tax recovery was reduced by $0.2
million as a result of the effect of stock based compensation and other
non-deductible expenses, and reduced by $1.0 million as a result of the effect
of a future income tax valuation allowance.

    Net Loss and Loss per Share

    Net loss and comprehensive loss totaled $(5.4) million for Q2 2009, an
improvement over the $(6.6) million recorded in Q2 2008. The decreased loss is
mainly due to the higher average job revenues resulting from the larger jobs
completed in the quarter and reduced expenses.
    For the quarter ended June 30, 2009, basic and diluted loss per share was
$(0.24), compared to basic loss per share of $(0.30) and diluted loss per
share of $(0.29) recorded in Q2 2008.

    
    2009 YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS

                                                       June 30,      June 30,
    Six Months Ended                                      2009          2008
    -------------------------------------------------------------------------
                                                    (Unaudited)   (Unaudited)

    Revenues                                       $28,087,028   $22,645,286

    Expenses
      Operating                                     23,678,578    20,994,390
      Selling, general and administrative            3,394,428     3,624,977
      Stock-based compensation                         594,136       403,466
      Interest on long-term debt                       313,155       736,506
      Other interest                                    30,938        92,649
      Depreciation and amortization                  4,589,904     4,736,693
                                                  ---------------------------
    Loss before income taxes                        (4,514,111)   (7,943,395)
                                                  ---------------------------

      Income taxes-future (reduction)                  (69,550)     (395,727)
                                                  ---------------------------
                                                       (69,550)     (395,727)
                                                  ---------------------------
    Net loss and comprehensive loss                $(4,444,561)  $(7,547,668)
                                                  ---------------------------
                                                  ---------------------------

    EBITDA before stock based compensation(1)       $1,014,022   $(1,974,081)
                                                  ---------------------------
                                                  ---------------------------

    Loss per share:
      Basic                                             $(0.20)       $(0.34)
      Diluted                                           $(0.20)       $(0.34)
                                                  ---------------------------
                                                  ---------------------------

    Note (1): See Non-GAAP Measures.
    


    Revenues

    For the six months ended June 30, 2009, Canyon's continued expansion into
the deeper, horizontal segments of the market with the completion of large,
multi-stage fracs in the Montney resulted in a 24% increase in revenues to
$28.1 million from $22.6 million in the six months ended June 30, 2008.
Despite a significant drop in the demand for well stimulation services in the
first half of 2009, the total job count decreased by only 5% to 599 jobs
completed compared to 632 jobs in the 2008 comparable period. As a result,
average revenue per job was $46,947 in the first six months of 2009 compared
to $36,111 per job in the 2008 comparable period.

    Operating Expenses

    Operating expenses for the six months ended June 30, 2009 increased by
13% to $23.7 million from $21.0 million in the 2008 comparable period.
Although the job count was 5% lower in the six months ended June 30, 2009
compared to the comparable 2008 period, variable costs per job increased
because of the Company's expansion into larger and deeper fracs. In late March
2009, Canyon introduced cost-cutting measures resulting in a 30% reduction in
the fixed component of operating costs in Q2 2009 over Q1 2009. Canyon's
current level of fixed operating costs will support a much higher level of
activity, with the result that, when the industry returns to more normal
activity levels, Canyon will incur fixed costs at a proportionately lesser
rate for the additional job activity, as the necessary operating
infrastructure is mostly in place.

    Selling, General and Administrative Expenses ("SG&A")

    Selling, general and administrative expenses before stock-based
compensation expense were $3.4 million in the six months ended June 30, 2009
compared to $3.6 million in the comparable 2008 period. Management expects
that SG&A will grow at a proportionately lesser rate as the Company's
operating activities continue to expand, as much of the back-office
infrastructure necessary to support expanded operational activities is in
place.

    Stock-Based Compensation Expense

    In the six months ended June 30, 2009, the Company recorded stock-based
compensation expense of $0.6 million compared to $0.4 million in the 2008
comparable quarter. Included in the current period's expense is $0.2 million
accrued non-cash stock-based compensation expense relating to deferred share
units which will vest commencing February 11, 2010, with an offsetting
liability included in accounts payable and accrued liabilities.

    EBITDA (See NON-GAAP MEASURES)

    In the six months ended June 30, 2009, EBITDA before stock-based
compensation expense was $1.0 million, a significant improvement over the
negative $(2.0) million of EBITDA before stock based compensation expense
recorded in the 2008 comparable period. The 2009 EBITDA before stock based
compensation expense of $1.0 million consists of loss before income taxes of
$(4.5) million, plus depreciation and amortization of $4.6 million, plus
interest on long-term debt and other interest of $0.3 million, plus
stock-based compensation expense $0.6 million. The comparable 2008 EBITDA
before stock based compensation expense of negative $(2.0) million consists of
loss before income taxes of $(7.9) million, plus depreciation and amortization
of $4.7 million, plus interest on long-term debt and other interest of $0.8
million and stock based compensation expense of $0.4 million.

    Interest Expense

    Interest on long-term debt and other interest totals $0.3 million in the
six months ended June 30, 2009 compared to $0.8 million in the comparable 2008
period. The lower interest expense is mostly due to lower debt levels in the
current period as the Company significantly reduced debt levels in the second
half of 2008.

    Depreciation Expense

    Depreciation expense totaled $4.6 million in the six months ended June 30
2009 compared to $4.7 for the comparable 2008 period.

    Income Tax Expense

    At the expected combined income tax rate of 29.0%, loss before income
taxes for the six months ended June 30 2009 of $(4.5) million would have
resulted in an expected income tax recovery of approximately $(1.3) million
compared to the actual recovery of $(0.1) million. The expected future income
tax recovery was reduced by $0.2 million as a result of the effect of stock
based compensation and other non-deductible expenses and 1.0 million as a
result of the effect of a future income tax valuation allowance.

    Net Loss and Loss per Share

    Net loss and comprehensive loss totaled $(4.4) million for the six months
ended June 30 2009, significantly lower than the net loss of $(7.5) million
for the comparable 2008 period. This is primarily due to the 24% increase in
revenues in the current period.
    Basic and diluted loss per share for the six months ended June 30, 2009
was ($0.20), an improvement over the basic and diluted loss per share of
$(0.35) recorded in the comparable 2008 period.

    NON-GAAP MEASURES

    The Company's Consolidated Financial Statements are prepared in
accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and
are reported in Canadian currency.
    The term "EBITDA" is used in this document to refer to Earnings from
continuing operations before interest, taxes, depreciation and amortization.
EBITDA before stock compensation expense is also used in this document. EBITDA
is not a term recognized under Canadian GAAP and does not have a standardized
meaning prescribed by GAAP. While management of the Company believes that
EBITDA is commonly used, and is a useful measure for readers in evaluating
financial performance of the Company, the Company's method of calculating
EBITDA may differ from, and therefore, not be comparable to similar measures
provided by other reporting issuers.
    The following table provides a reconciliation of net loss and
comprehensive loss under GAAP as disclosed in the consolidated statements of
operations to EBITDA before stock-based compensation expense.

    
    -------------------------------------------------------------------------
                           Three months ended           Six Months ended
                                June 30                     June 30
    -------------------------------------------------------------------------
                           2009          2008          2009          2008
    -------------------------------------------------------------------------
    EBITDA before
     stock-based
     compensation
     expense           $(3,002,671)  $(3,643,375)   $1,014,022   $(1,974,081)
    -------------------------------------------------------------------------
    Add (Deduct):
      Depreciation and
       amortization     (2,290,549)   (2,355,458)   (4,589,904)   (4,736,693)
      Other interest        (8,829)      (62,287)      (30,938)      (92,649)
      Interest on
       long-term debt     (170,915)     (379,892)     (313,155)     (736,506)
      Stock-based
       compensation       (422,380)     (219,254)     (594,136)     (403,466)
      Income taxes         506,343        96,415        69,550       395,727
    -------------------------------------------------------------------------
    Net loss and
     comprehensive
     loss              $(5,389,001)  $(6,563,851)  $(4,444,561)  $(7,547,668)
    -------------------------------------------------------------------------
    

    FORWARD-LOOKING STATEMENTS

    This document contains certain forward-looking information and statements
within the meaning of applicable securities laws. The use of any of the words
"expect", "anticipate", "continue", "estimate", "guidance", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans", "intends",
"budget", "strategy" and similar expressions are intended to identify
forward-looking information or statements. In particular, but without limiting
the foregoing, this document contains forward-looking information and
statements pertaining to the following: future oil and natural gas prices;
future results from operations; future liquidity and financial capacity and
financial resources; future costs, expenses and royalty rates; future interest
costs; future capital expenditures; future capital structure and expansion;
the making and timing of future regulatory filings; and the Company's ongoing
relationship with major customers.
    The forward-looking information and statements contained in this document
reflect several material factors and expectations and assumptions of the
Company including, without limitation: that the Company will continue to
conduct its operations in a manner consistent with past operations; the
general continuance of current or, where applicable, assumed industry
conditions; the continuance of existing (and in certain circumstances, the
implementation of proposed) tax, royalty and regulatory regimes; certain
commodity price and other cost assumptions; the continued availability of
adequate debt and/or equity financing and cash flow to funds its capital and
operating requirements as needed; and the extent of its liabilities. The
Company believes the material factors, expectations and assumptions reflected
in the forward-looking information and statements are reasonable but no
assurance can be given that these factors, expectations and assumptions will
prove to be correct.
    The forward-looking information and statements included in this document
are not guarantees of future performance and should not be unduly relied upon.
Such information and statements involve known and unknown risks, uncertainties
and other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking information or statements
including, without limitation: changes in commodity prices; changes in the
demand for or supply of the Company's services; unanticipated operating
results; changes in tax or environmental laws, royalty rates or other
regulatory matters; changes in the development plans of third parties;
increased debt levels or debt service requirements; limited, unfavourable or a
lack of access to capital markets; increased costs; a lack of adequate
insurance coverage; the impact of competitors; reliance on industry partners;
and certain other risks detailed from time to time in the Company's public
disclosure documents (including, without limitation, those risks identified in
this document and the Company's Annual Information Form).
    The forward-looking information and statements contained in this document
speak only as of the date of the document, and none of the Company or its
subsidiaries assumes any obligation to publicly update or revise them to
reflect new events or circumstances, except as may be required pursuant to
applicable laws.





For further information:

For further information: Brad Fedora, President, Canyon Technical
Services Ltd, Suite 1600, 510-5th Street S.W., Calgary, Alberta, T2P 3S2,
Phone (403) 290-2491, Fax (403) 355-2211 Or Barry O'Brien, Vice President,
Finance and CFO, Canyon Technical Services Ltd, Suite 1600, 510-5th Street
S.W., Calgary, Alberta, T2P 3S2, Phone (403) 290-2478, Fax (403) 355-2211


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